Sirius/XM Loses Big in California Court Ruling, But What Will Be the Impact on the Industry?

Yesterday, a California federal court ruled against Sirius XM in a lawsuit brought by Flo & Eddie of 60’s hitmakers The Turtles regarding the satellite radio company’s failure to pay royalties for the use of recordings made before February 15, 1972.

Why is that date important? Well, believe it or not, there is no federal copyright protection for sound recordings made before that precise time. We’ve previously described how this exception in the law leaves a whole host of artists unprotected, and why full federalization of these recordings is the best option. We’ll circle back to that in a minute, but first let’s examine yesterday’s court decision and potential outcomes.

Yesterday’s ruling finds that, despite the lack of federal protection, California state law covers public performances of pre-‘72 recordings. Currently, the legal community (and the industry at large) is trying to figure out whether a ruling specific to California has bearing on the broader music marketplace. It looks like the answer is probably “yes,” but it remains to be seen how far the ripples will be felt.

In part, that’s because this is just one ruling in one case among several. There’s another suit brought by the major labels against Sirius XM over pre-1972 music in California, and still another action by the labels against Pandora in New York State. And let’s not forget that yesterday’s Flo & Eddie/Turtles decision will likely be appealed. Which means that in terms of the legal battle, there are certainly more skirmishes ahead.

How can digital broadcasters get away with not paying for the music they use?

If you’re still baffled as to why satellite and Internet radio do not always pay a royalty to performers and sound recording copyright owners, here’s a quick refresher:

There are two different copyrights in every piece of recorded music. First is the musical composition (think notes on paper and lyrics), which belongs to songwriters and publishers. All forms of radio—AM/FM, Internet and satellite, as well as restaurants, bars and concert venues—pay royalties to the songwriters and publishers through performance rights organizations (PROs), such as ASCAP, SESAC and BMI.

The second copyright is for the sound recording (think performances captured on tape or hard drive). As we mentioned above, Congress did not recognize sound recordings until 1972. For its entire history, AM/FM radio has not been obligated to pay performers or labels anything for the broadcast of sound recordings, whether they were recorded before or after 1972. However, a law was passed in the mid-1990s that created a “digital public performance right” which pays performers and labels for satellite and Internet radio plays via the nonprofit SoundExchange. (For more info on how this works, check out our SoundExchange fact sheet.)

Given that federal law technically doesn’t recognize pre-1972 recordings, certain digital music services believe that they don’t have to pay for the use of that music. We feel strongly that older performing artists deserve to be paid, especially since these folks may have had difficulty obtaining royalties from their labels over the decades. One great thing about the digital public performance right for sound recordings is that the performer’s share of royalties (roughly half, minus 5 percent that goes into a fund for backing singers and musicians) is paid directly to the performers and not held against their “debt” to a label.

How will online and offline radio be impacted?

Now back to the court case. Essentially, Sirius/XM says that it has no obligation to pay royalties for recordings that aren’t under federal protection. Flo & Eddie, along with the major labels, argue that individual state law—whether statute or court precedent—is sufficient to compel payment for public performances. Obviously, this is highly dependent on specific facts that would no doubt vary from state to state. Which is why litigation is not a great long-term solution.

The reason all of this even got cued up for the courts is because the trio of federal judges that presides over rate-setting for sound recordings used on digital radio, the Copyright Royalty Board (CRB), previously decided that Sirius/XM was not obligated to pay through SoundExchange. However, the CRB did not comment on state law one way or the other.

So where does this all head? It’s hard to say, especially given that a different judge in California recently issued an interim ruling in favor of Sirius/XM’s argument.

Theoretically, the services could stop playing pre-’72 recordings, but that feat is easier said than done, given the lack of precise recordkeeping around these recordings (and ownership thereof).

Some legal analysts have suggested that the Flo & Eddie/Turtles ruling is broad enough to go beyond digital radio and possibly even implicate AM/FM and live venues. This obviously would be a major shift in royalty obligations industry-wide, because as we mentioned above, AM/FM radio, clubs, restaurants and concert halls are currently not obligated to pay anything for the performance of sound recordings.

It may be that a legislative solution is preferable for all parties—especially the services, who may find themselves on the hook for sizable back royalties and even high statutory damages for infringement. We’ll be paying very close attention and reporting back on developments.

In the coming weeks, we’ll take a closer look at how to fix the issue of pre-‘72s, with an eye towards solutions that benefit performers across the board. Stay tuned.